Bombay H.C : disallowance of software expenditure to the extent as capital expenditure as software used for the first time will have to be considered as capital in nature

High Court Of Bombay

CIT vs. Raychem RPG Ltd.

Assessment Year : 2001-02

Section : 37(1)

J.P. Devadhar And A.A. Sayed, JJ.

IT Appeal No. 4176 Of 2009

July 4, 2011

JUDGMENT

1. Two questions of law raised by the Revenue in this appeal, which read thus :

“(a) Whether on the facts and circumstance of the case and in law, the Hon’ble Tribunal was justified in deleting the additions in respect of disallowance of software expenditure to the extent of Rs. 23,62,368 as capital expenditure as software used for the first time will have to be considered as capital in nature ?

(b) Whether on the facts and circumstances of the case and in law, the Hon’ble Tribunal was right in deleting the additions made in respect of the scrap sales as while computing the eligible deduction under s. 80HHC of the Act, any receipt credited to the P&L a/c should either be included in the total turnover or 90 per cent of the same should be reduced while computing profit of the business ?”

2. As regards the first question, Tribunal relying upon its order in the assessee’s own case relating to asst. yr. 2001-02 held that the software expenditure was a revenue expenditure. The appeal filed by the Revenue for the asst. yr. 2001-02 has been dismissed for want of removal of office objections and thus the order passed by the Tribunal for the asst. yr. 2001-02 has attained finality. Moreover, the Tribunal in its order relating to the asst. yr. 2001-02 has allowed expenditure as revenue expenditure by recording thus :

“7. When we apply this functional test suggested by the Special Bench of the Tribunal, we find that impugned software does not form part of the profit-making apparatus of the assessee and hence the same is to be disallowed as revenue expenditure. We hold so because we find that the business of the assessee company is that of manufacturing of telecommunication and power cable accessories and trading in oil retracing system and other products and impugned software is an enterprises resources planning (ERP) package and hence it facilitates the assessee’s trading operations or enabling the management to conduct the assessee’s business more efficiently or more profitably but it is not in the nature of profit-making apparatus. We, therefore, decide this issue also in favour of the assessee and we hold that this expenditure of Rs. 20.60 lakhs is revenue expenditure. We hold so by following the judgment of the Special Bench of the Tribunal relied upon by the learned Authorised Representative of the assessee.”

3. In our view, no fault can be found in the aforesaid order of Tribunal holding that software expenditure was allowable as revenue expenditure.

4. As regards, the second question is concerned, learned counsel for the parties agree that in view of the judgment in CIT v. Dresser Rand India (P) Ltd. [2010] 323 ITR 429/191 Taxman 339 (Bom.) the question be restored to the file of the Tribunal for fresh consideration in the light of aforesaid judgment. Accordingly, the second question is restored to the file of Tribunal for fresh consideration in the light of judgment in Dresser Rand India (P.) Ltd. (supra).

5. Appeal is disposed of accordingly.

[Citation : 346 ITR 138]

Leave a Reply

Your email address will not be published. Required fields are marked *